Friday, December 29, 2017

JCT distribution tables

Bottom line: No change. Income categories are paying almost exactly the same share of federal taxes as before. Millionaires actually pay a tiny bit larger share in the new bill.

Given the distributional hue and cry, frankly, it is a surprise to me just how tiny -- far below measurement errors -- the changes are.

One can argue whether this is the "right" measure of progressivity or redistribution, whether a tax cut should include a change in which income categories pay what share. But it summarizes the facts, which are stubborn things. Shares of federal taxes paid by income groups do not change. Millionaires get bigger dollar tax cuts exactly to the extent that they pay higher taxes. Period.

Note to those outside the beltway: The Joint Committee on Taxation is the committee set up by Congress to evaluate tax policy. Most criticism I've seen of its calculations lately come from the right.

While I think the JCT makes a good faith effort to provide accurate and unbiased *estimates*, it is a bit of an overstatement to characterize what they are summarizing as "facts". The only thing "factual" about that chart is that, as a matter of fact, it summarizes their estimates.

That is pretty amazing. I would be interested in knowing if it this result is just happenstance of if the legislation was engineered to produce this result. (Not that there's anything wrong with that!)

It was engineered to produce the result; you would NEVER come this close to distribution neutral otherwise.

Which strikes me as misguided in terms of pure politics: to those left of center it's still a tax cut occurring outside a recession with a Republicans in office (the left only likes tax cuts passed by a Democrat, in the midst of a "downturn"), while those right of center probably don't care too much about tax distribution in the first place (at least in the context of such a minor cut).

On the other hand my capacity to understand the thinking of so-called "Progressives" on the left and "Populists" on the right is pretty much nil. So maybe among the practitioners those strange religions this stuff is very important.

The most amazing thing is that people can show a table where the vast majority of taxes are paid by people making $100k or more...and yet still complain about them paying their "fair share" and about the "poor".

True only if one's definition of taxes are limited to "net income taxes". The better measure would be to add "gross wage taxes" (aka Social Security and Medicare), both employee and employer paid, to the numerator and denominator.

I understand why politicians try to pretend there is a difference and ignore the gross wage taxes. I don't understand why so many economists ignore them. They are pretty important when one wants to discuss tax equity. Gross wage taxes are a higher cost than income taxes for those lowest on the income scale. All the dollars go to the same place, even if politicians try to say the left pocket is different than the right pocket.

Wage taxes are highly progressive as well in that the lower income receive proportionately much better benefits. They receive large returns on a modest investment, while the high-wage take a loss. Same for Medicare I believe. So it makes some sense to exclude something where you get a direct benefit back that is more valuable than the tax paid.

Wage taxes are highly progressive as well in that the lower income receive proportionately much better benefits. They receive large returns on a modest investment, while the high-wage take a loss. Same for Medicare I believe. So it makes some sense to exclude something where you get a direct benefit back that is more valuable than the tax paid.

Anonymous (December 29, 2017 at 5:59 PM) makes the common mistake of looking at who the taxes are coming from without looking at who the income is going to. In fact the system is a little "progressive". But not very much. About a third of all tax comes from those with a quarter of all income. Not fake news at all. Just watch FOX for a regular supply of fake news.--E5

And the next move will be to go after the entitlements. Here is the pitch that will be made: give up part of your Medicaid, Medicare, Obamacare, Social Security or you will lose it all. Tax cuts the lower brackets just got will get either weakened or wiped out. In 3 years check out changes in CEO compensation and corporate profits and compare them with minimum wage rise, poverty level change, middle class wealth share change, national debt change, budget deficit change, infant mortality rate change... I'll post the results three years from now.

According to the 2027 projections (last table in the PDF), those in the 75k+ categories are paying a smaller share than under present law. This contradicts one of the top-line claims in the post ("Millionaires actually pay a tiny bit larger share in the new bill.").

According to the projections, the share paid by those in the 75k+ categories is smaller by 2027 (see last table in the PDF). This contradicts one of the top-line claims in the post("Millionaires actually pay a tiny bit larger share in the new bill.")

His question was whether the tables look the same seven years from now. As for those 2027 projections, I believe they're based on the unlikely scenario that a future congress will allow the main parts of the tax cuts that benefit the middle class to expire.

We are now a "nation" where half the people vote to take from the other half. And then complain about it when they do. "Nation" in quotation marks since we are hardly a nation anymore; adding 2 million more every year from around the world to add to the ranks of leeches.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!